UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
Commission File Number: 0-9083
--------
Enercorp, Inc.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(248) 851-5651
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------ ------
Number of shares of common stock outstanding at September 30, 1999: 695,897
<PAGE>
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended September 30, 1999
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
September 30, 1999 (Unaudited) and June 30, 1999 4
Schedule of Investments (Unaudited), September 30, 1999 5-6
Schedule of Investments June 30, 1999 7-8
Statements of Operations (Unaudited) for the Three
Months Ended September 30, 1999 and 1998 9
Statements of Cash Flows (Unaudited) for the Three
Months Ended September 30, 1999 and 1998 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
2
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Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the three months ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1999. These statements
should be read in conjunction with the financial statements and notes
thereto included in the Annual 10-K Report (filed with the Securities
and Exchange Commission) for the year ended June 30, 1999.
3
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<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Assets and Liabilities
September 30, June 30,
ASSETS 1999 1999
--------------- -------------
<S> <C> <C>
Investments, at fair value, cost of $1,784,888 and $2,204,888
at September 30, 1999 and June 30, 1999 respectivel$ 4,808,544 $ 6,610,996
Cash 18,381 16,907
Accounts receivable - related party 179 6
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $18,074 and $17,339
at September 30, 1999 and June 30, 1999, respectively 437,368 5,780
Note receivable - related parties net of allowance for
uncollectible notes receivable of $27,776 and $23,147
at September 30, 1999 and June 30, 1999, respectively 3,086 7,715
Furniture and fixtures, net of accumulated depreciation
of $8,230 and $7,763 at September 30, 1999 and
June 30, 1999, respectively 4,206 4,674
Other assets 1,454 1,767
--------------- -------------
$ 5,273,219 $ 6,647,846
=============== =============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,413,649 $ 2,323,249
Accounts payable and accrued liabilities 24,525 23,730
Deferred tax liability 268,000 773,000
--------------- -------------
2,706,174 3,119,979
--------------- -------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 and 590,897 shares issued and
outstanding September 30, 1999 and June 30, 1999 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,316,865) (1,268,492)
Unrealized net gain on investments, net of deferred
income taxes of $1,028,000 and $1,498,000 at
September 30, 1999 and June 30, 1999, respectively 1,995,659 2,908,108
--------------- -------------
2,567,045 3,527,867
--------------- -------------
$ 5,273,219 $ 6,647,846
=============== =============
4
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<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments
September 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
<S> <C> <C> <C> <C> <C> <C> <C>
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 2
10,000,000 106,477 90,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 400,000 60,000 950,000
control systems (e) 850,000 127,500 2,018,750
(e) 330,000 412,500 783,750
(e) 30,000 108,750 71,250
(e) 50,000 125,000 118,750
(e) 150,000 61,500 356,250
42,329 100,000 100,531
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 294,118 600,000 215,206
(e) 16,667 37,500 12,195
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 5,850
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - -
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c) 50,000 -
03/12/03 (c)(f) 50,000 - 2,550
10/02/08 (c)(g) 50,000 - 10,625
---------- -----------
1,759,227 4,735,709
See notes to financial statements
5
(Continued)
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<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
September 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
<S> <C> <C> <C> <C> <C> <C> <C>
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company (h) 100,000 5,000 68,000
Vitro Diagnostics Diagnostic Test Kits 300 1,500 45
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
---------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 72,835
---------- -----------
Total - ALL COMPANIES $ 1,784,888 $ 4,808,544
========== ===========
(a)Non-public company whose securities are privately owned.
(b)May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated. (c)No
public market for this security exists. (d)The fair value of restricted
securities is determined in good faith by the Company's Board of Directors,
which may take into account
a variety of factors, including recent and historical prices of these
securities, recent transactions completed by the Company, and other
factors that the Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options will vest an additional 25% on 3/12/00 and 3/12/01 consecutively.
(g)Options will vest an additional 25% on 10/2/99, 10/2/00 & 10/2/01 consecutively.
(h)In August 1999, Immune Response completed a 1-for-100 reverse stock split.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
6
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<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
<S> <C> <C> <C> <C> <C> <C> <C>
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 400,000 60,000 1,187,500
control systems (e) 850,000 127,500 2,523,438
(e) 330,000 412,500 979,688
(e) 30,000 108,750 89,063
(e) 50,000 125,000 148,438
(e) 150,000 61,500 445,313
42,329 100,000 125,664
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 294,118 600,000 537,750
(e) 16,667 37,500 30,473
Pro Golf International, Inc. Franchisor of retail golf stores (a) 16,800 419,832 419,832
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 9,000
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - 13,280
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c)(f) 50,000 21,250
03/12/03 (c)(g) 50,000 - 29,113
10/02/08 (c)(h) 50,000 - 37,188
Pro Golf Online, Inc. Internet sale of golf related 06/23/02 (c) 42,000 168 168
products ---------- -----------
2,179,227 6,606,161
See notes to financial statements
7
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<TABLE>
<CAPTION>
(Continued)
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
<S> <C> <C> <C> <C> <C> <C> <C>
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 45
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
---------- ----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,835
---------- ----------
Total - ALL COMPANIES $ 2,204,888 $ 6,610,996
========== ==========
(a)Non-public company whose securities are privately owned.
(b)May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated. (c)No
public market for this security exists. (d)The fair value of restricted
securities is determined in good faith by the Company's Board of Directors,
which may take into account
a variety of factors, including recent and historical prices of these
securities, recent transactions completed by the Company, and other
factors that the Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options will vest an additional 25% on 9/13/99.
(g)Options will vest an additional 25% on 3/12/00 and 3/12/01 consecutively.
(h)Options will vest an additional 25% on 10/2/99, 10/2/00 & 10/2/01 consecutively.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
8
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<CAPTION>
Enercorp, Inc.
Statements of Operations
For the Three Months
Ended September 30,
----------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
REVENUES
Interest income from related entities $ 12,324 $ 2,444
----------------- ------------------
EXPENSES
Salaries - officer 21,750 21,750
Bonus -0- 12,500
Legal, accounting and other professional fees 6,750 1,633
Interest expense - other 53,191 49,408
Bad debt expense 5,364 613
Other general and administrative expenses 8,639 7,775
------------------
95,694 93,678
----------------- ------------------
Net (loss) from operations before taxes (83,370) (91,234)
Income tax expense (benefit) 35,000 32,000
----------------- ------------------
Net (loss) from operations after taxes (48,370) (59,234)
----------------- ------------------
Net unrealized gain (loss) on investments before taxes (1,382,452) (134,469)
Income tax expense (benefit) 470,000 46,000
----------------- ------------------
Net unrealized gain on investment after taxes (912,452) (88,469)
----------------- ------------------
Increase in net assets $ (960,822) $ (147,703)
================= ==================
Increase in net assets per share $ (1.63) $ (0.25)
================= ==================
9
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<CAPTION>
Enercorp, Inc.
Statements of Cash Flows
For the Three Months
Ended September 30,
---------------------------------------
1999 1998
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Increase in net assets (960,822) $ (147,703)
------------------ ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 467 308
Bad debt provision on notes receivable
and interest net of write offs 5,364 613
Unrealized (gain) on investments 1,802,452 134,469
(Increase) in accounts receivable - related party (172) -0-
(Increase) in interest and notes receivable-related (432,324) 2,293
Decrease in other assets 314 162
Increase (decrease) in accounts payable and
accrued expenses 795 (788)
Increase in deferred taxes (505,000) (78,000)
------------------ ----------------
Total adjustments 871,896 59,057
------------------ ----------------
Net cash (used) by operating activities (88,926) (88,646)
------------------ ----------------
Cash flows from investing activities
Payments received on note receivable - related party -0- 150,000
Purchase of investments -0- (100,000)
------------------ ----------------
Net cash (used) by investing activities 50,000
------------------ ----------------
Cash flows from financing activities:
Proceeds from notes payable 90,400 40,000
------------------ ----------------
Net cash provided by investing activities 90,400 40,000
------------------ ----------------
Increase in cash 1,474 1,354
Cash, beginning of period 16,907 16,128
------------------ ----------------
Cash, end of period $ 18,381 $ 17,482
================== ================
Supplemental disclosures of cash flow information:
Interest paid $ 53,324 $ 49,394
================== ================
10
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<PAGE>
Note 1: Investments
On August 13, 1998, Ajay Sports, Inc. ("Ajay") announced that its board of
directors had authorized the implementation of a 1-for-6 reverse split of
the company's common stock, effective with the commencement of trading on
August 14, 1998. The reverse split was approved by the stockholders of
Ajay at the company's annual meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common
stock currently held. Therefore, the number of Ajay shares held by the
Company is 310,785.
On June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. The
proceeds from this offering were used to purchase 4.2 Units in a private
offering made jointly by Pro Golf International, Inc. ("PGI") and Pro Golf
Online, Inc. (""PGO"). Each Unit in this offering consisted of 4,000
shares of PGI common stock and 10,000 warrants, each to purchase one share
of PGO common stock for $5.00 per share, exercisable on or before June 23,
2002. The purpose of the offering was to raise the funds necessary for PGI
to acquire Pro Golf of America, Inc. ("Pro Golf"). This acquisition was
completed on June 23, 1999. PGI and PGO are both majority owned
subsidiaries of Ajay. PGI operates through its wholly owned operating
subsidiary, Pro Golf. Under its prior ownership, Pro Golf opened one of
America's first `off-course' retail golf stores in 1962, virtually
inventing the retail and discount golf store concept. The retail success
led the company to begin franchising in 1975. Today, its franchised stores
generate nearly $250 million in golf equipment and apparel sales through
the off-course golf shop distribution channel each year. Pro Golf collects
initial franchise fees from each new store and ongoing monthly royalties
based on product sale that occur in franchised stores. PGO was formed to
acquire the Internet operations of Pro Golf and Ajay, and has obtained
only limited financing. The Internet site generates limited sales and is
still under development. During the 2000 fiscal year, this entity will be
assembling its management team, expanding sales and seeking additional
financing and the Registrant believes this opportunity has significant
potential for long-term success. During the first quarter, the stock was
reclassified as sub-debt. The Company has a promissory note that is
subordinated to PGI's primary lender, with the right to convert to common
stock on the terms previously stated in this paragraph. The unpaid
principal balance will bear an interest rate of 10% and will be due and
payable in full on July 22, 2000. The interest receivable from PGI is
$11,505 as of September 30, 1999.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
----------------------------------------
In June 1998, the Registrant renewed its line of credit with Comerica
Bank and the line was increased to $2,500,000 at 3/4% over Comerica's
prime lending rate. The collateral for this line of credit is 1,660,000
shares of Williams Controls ("Williams") common stock owned by the
Registrant and 1,864,706 pre-reverse split shares of common stock of
Ajay owned by the Registrant. Borrowing is limited to 50% of the fair
market value of the collateral, except that the maximum amount that can
be borrowed against the Ajay stock is $400,000. This loan is due on
demand. The balance of the Registrant's note payable to Comerica as of
September 30, 1999 was $2,413,649.
The Registrant's liquidity is affected primarily by the business
success, securities prices and marketability of its investee companies
and by the amount and timing of new or incremental investments it makes.
At September 30, 1999 the Registrant's borrowing availability against
the Comerica line of credit was $86,351. The Registrant has several
options for continued cash flow including selling some shares of Ajay or
Williams common stock.
Material Changes in Results of Operations:
------------------------------------------
The Registrant's revenues were $12,324 and $2,444 for first quarter
ended September 30, 1999 and 1998, respectively. The increase in
revenues for the quarter, compared with the prior year's quarter, is due
to an increase in interest income from related companies.
The Registrant recorded an unrealized loss on investments of $1,382,452
for the first quarter ended September 30, 1999 compared to a loss of
$134,469 for the first quarter ended September 30, 1998. This is mainly
due to the changes in fair market value of the Registrant's investment
in Williams and Ajay.
Williams Controls, Inc. - Investee Company
------------------------------------------
The Registrant's largest investee company, Williams, is a publicly held
company (Nasdaq: WMCO) in which the Registrant owns common stock and
options. Management recognizes that there is risk associated with its
lack of diversification due to its large investment concentration in
Williams. Williams Controls, Inc., through its subsidiary companies,
manufactures and markets sensors, controls and communication systems for
the transportation and telecommunication industries.
12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
The Registrant does not anticipate the year 2000 compliance requirements will
have a material impact on earnings. The Registrant has initiated replacement of
the Registrant's most significant computer programs with new updates that are
warranted to be year 2000 compliant. Installation of these updates was completed
on September 8, 1999. All other programs subject to year 2000 concerns will be
evaluated utilizing internal and external resources to reprogram, replace or
test each of them. In connection with the managerial assistance provided by the
Registrant to its investee companies, the Registrant has monitored the
activities and actions being taken by its investee companies to ensure their
compliance with year 2000 requirements. Based on the information available to
the Registrant, management of the Registrant believes that its investee
companies have taken, or are in the process of taking, all reasonable actions
necessary to prevent any material impact on their earnings as a result of the
change in the millennium.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit 27 Financial Data Schedule
B) Form 8-K
None
13
<PAGE>
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended September 30, 1999
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enercorp, Inc.
--------------
(Registrant)
BY /s/Robert R. Hebard
-------------------------------------
Robert R. Hebard
President and Chief Financial Officer
Date: November 12, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000313116
<NAME> Enercorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-START> Jul-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 18,381
<SECURITIES> 4,808,544
<RECEIVABLES> 486,484
<ALLOWANCES> (50,923)
<INVENTORY> 0
<CURRENT-ASSETS> 5,264,473
<PP&E> 12,436
<DEPRECIATION> 8,230
<TOTAL-ASSETS> 5,273,219
<CURRENT-LIABILITIES> 2,706,174
<BONDS> 0
0
0
<COMMON> 1,888,251
<OTHER-SE> 678,794
<TOTAL-LIABILITY-AND-EQUITY> 5,273,219
<SALES> 0
<TOTAL-REVENUES> 12,324
<CGS> 0
<TOTAL-COSTS> 42,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,191
<INCOME-PRETAX> (83,370)
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,370)
<EPS-BASIC> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>